Sentiment and Stock Returns: The SAD Anomaly Revisited

56 Pages Posted: 2 Aug 2004 Last revised: 17 Jul 2015

See all articles by Felix Meschke

Felix Meschke

University of Kansas - Finance Area

Patrick J. Kelly

The University of Melbourne

Date Written: 2010


Widely-cited research by Kamstra et al. (2003) argues that changes in mood resulting from Seasonal Affective Disorder (SAD) drive changes in investor risk aversion and cause seasonal patterns in aggregate stock returns around the world. In this paper we reexamine the so-called SAD effect by replicating and extending Kamstra et al. (2003). We study the psychological underpinnings of the SAD hypothesis and show that the time-series predictions of the SAD model do not correspond to the seasonal patterns in depression found in the general population. We also investigate the cross-sectional prediction that SAD has a greater effect on stock markets in countries where SAD is more prevalent and find no relation between the prevalence of SAD and stock returns. Finally, we document that the SAD effect is mechanically driven by an overlapping dummy-variable specification and higher returns around the turn of the year.

Keywords: Asset pricing, market efficiency, behavioral finance, depression, seasonality, predictability, investor behavior, Seasonal Affective Disorder, SAD

JEL Classification: G14, G12

Suggested Citation

Meschke, Felix and Kelly, Patrick J., Sentiment and Stock Returns: The SAD Anomaly Revisited (2010). Journal of Banking and Finance 34, no. 6 (2010): 1308-1326, Available at SSRN:

Felix Meschke

University of Kansas - Finance Area ( email )

Capitol Federal Hall
1654 Naismith Drive
Lawrence, KS 66045
United States
(347) 433-5495 (Phone)


Patrick J. Kelly (Contact Author)

The University of Melbourne ( email )

The University of Melbourne
Faculty of Business and Economics
Melbourne, Victoria 3010 3010

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